The Indian Government has undertaken various measures to tackle the spread
of and loss caused by Covid-19. One of it being the recent steps taken by
the Ministry of Corporate Affairs (MCA) in issuing
amendments / clarifications to Corporate Social Responsibility ( CSR) provisions under section 135 of the Companies Act,
2013 (“Companies Act”) towards encouraging corporates in
fulfilling their social responsibility amidst the pandemic, and achieving a
win win situation for both the companies and the beneficiaries of CSR
funds. Among the various clarifications / amendments issued, the
clarification on spending of Corporate Social Responsibility funds for
Covid 19 stating that the amount spent on Covid-19 by companies will count
towards CSR spending is a timely and a welcome step.
Let’s evaluate the measures undertaken.
Any company engaged in research and development (R&D) activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22 and 2022-23 as an eligible CSR activity subject to certain conditions.
If it’s for Covid 19 – Go ahead and spend it!
The first such measure was announced on 23 March 2020 wherein the MCA clarified that spending of CSR Funds for Covid 19 is
an eligible CSR activity under CSR law. It expanded the scope of
contribution towards CSR activity for Covid 19 by reiterating that the
eligible CSR activities under Schedule VII of the Companies Act are ‘broad
based’ and may be ‘interpreted liberally’.
The clarification is aimed at encouraging companies to meet their CSR
obligations by contributing their CSR allocated funds towards the battle
against the Covid-19 more particularly on activities inter alia
relating to “
disaster management, including relief, rehabilitation and
reconstruction activities” and “eradicating hunger, poverty and
malnutrition and promoting health care”.
PM Cares (Fund) – So should Corporates!
Subsequently, on 28 March 2020, the MCA further clarified that any
contribution made to the Prime Minister’s Citizen’s Assistance and Relief
in Emergency Situations Fund (PM CARES Fund) by a company
shall qualify as a CSR expenditure under the Companies Act and on 26 May
2020, amended Schedule VII of the Companies Act to give effect to such
change with retrospective effect from 28 March 2020. A 100% tax exemption
under the Income Tax Act is also made available.
The PM CARES Fund was setup on 28 March 2020 with the primary objective of
tackling any emergency or distress situation such as the one posed by the
It was clarified that contributions made to ‘Chief Minister's Relief Fund’
or any ‘State Relief Fund’ for COVID-19 shall not qualify as admissible CSR
expenditure. However, contributions to the State Disaster Management
Authority to combat Covid 19 shall qualify as CSR expenditure.
What else is eligible CSR Spends?
In order to clear ambiguities around the eligibility of CSR expenditure
related to Covid 19, MCA issued FAQs for better understanding of the
stakeholders. Among other clarifications, it was clarified that payment of
wages to temporary or casual or daily wage workers during the lockdown
period shall not count towards CSR expenditure, however any ex-gratia
payment made to temporary / casual workers/ daily wage workers over and
above the disbursement of wages, specifically for the purpose of fighting
COVID 19 shall be admissible towards CSR expenditure as a one time
exception provided there is an explicit declaration to that effect by the
Board of the company, which is duly certified by the statutory auditor.
If it’s a normal course of business – We allow it!
In another and the latest effort to help combat COVID-19, MCA vide two
Notifications dated 24 August 2020 has amended the CSR Rules and Schedule
VII, wherein it is clarified that any company engaged in research and
development (R&D) activity of new vaccine, drugs and
medical devices in their normal course of business may undertake research
and development activity of new vaccine, drugs and medical devices related
to COVID-19 for financial years 2020-21, 2021-22 and 2022-23 as an eligible
CSR activity subject to certain conditions that, such research and
development activities shall be carried out in collaboration with the
public funded institutes or organisations mentioned in item (ix) of
Schedule VII and the details of such activity shall be disclosed separately
in the Annual Report on CSR included in the Board’s Report. This will
encourage the pharmaceutical companies engaged in R&D activity of new
vaccine, drugs and medical devices to collaborate and work together with
the public funded institutes or organizations for Covid 19.
Further, the companies may now contribute the CSR amount towards (i) R
& D projects in the field of Science, technology, engineering and
medicine funded by the Central Government or State Government or any agency
or PSU of the Central Government or State Government; and (ii) autonomous
bodies established by the department of pharmaceuticals and Ministry of
It is important to note that this relaxation is only for companies engaged
in research and development activity of a new vaccine, drugs or medical
devices and for financial years 2020 – 21, 2021 – 22 and 2022 – 23. The
restrictions on incurring CSR expenditure in activities (other than
mentioned herein) which are in the normal course of business of the company
shall continue, as it is.
As in all cases the above eligibility comes with certain conditions discussed above, and in view thereof, it is advisable to seek further professional advice before deciding if a particular expense will qualify for eligible CSR expenditure and also the terms of collaboration with the institutions needs to be crafted thoughtfully.
While the Government of India has already committed to spend large amounts
towards strengthening the healthcare infrastructure and training caregivers
across the country, the burning question on everyone’s mind still remains;
will it all be enough? And given the contagiousness and the exponential
spread of COVID-19, such questions seem to be well founded. The recent
steps by the MCA directing the funds towards the prevention and controlling
Covid 19 by allowing corporates to claim such expenditure as CSR
expenditure is a welcome move and is an effective and timely step, that
enables the companies to actively contribute their CSR funds for COVID-19
related relief efforts and at the same time direct additional funding for
this much needed cause. Further, vide Press Release dated 17 May 2020, the
Finance Minister has also clarified that any violations involving minor
technical and procedural defaults such as shortcomings in CSR reporting
shall not be penalized. This again is a welcome move.
If the ultimate goal of providing relief and assistance to COVID-19 victims
in these difficult times is achieved by companies through such measures,
then it would indeed be a major contribution in the fight against COVID-19
and would be in its true spirit achieve a Corporate’s Social
As in all cases the above eligibility comes with certain conditions
discussed above, and in view thereof, it is advisable to seek further
professional advice before deciding if a particular expense will qualify
for eligible CSR expenditure and also the terms of collaboration with the
institutions needs to be crafted thoughtfully.
Abhijeet Sonawane (Partner) and Saumya Srivastava (Associate)
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